Children should not play with bombs. Business rates are the cluster munitions of fiscal policy, and the chancellor, Philip Hammond, and his “communities” secretary, Sajid Javid, have been playing with them all week. They have duly exploded in high streets all over southern England. There is blood everywhere.

When I discovered that the resident of one of the most expensive flats in London was paying £1,400 a year in property tax, while Javid wants a watch shop in the same building to pay £244,000, I realised that whatever else Britain is good at, it is terrible at taxation.

The point is not that the building concerned, One Hyde Park, so stinks of money that no one is likely to notice what anyone pays. It is that such discrepancies are so grotesquely unfair as to ridicule an activity that still relies on honesty to work – that of paying taxes. If government were a profession, the ministers and civil servants involved in business rates would be debarred from further practice.

Ministers have long recognised the adage that we pay income tax in sorrow and council tax in anger. They have duly grubbed votes by not increasing either. Council taxes since 1993 have declined steadily against property prices and become ever more regressive. There has been no domestic property revaluation for a quarter of a century. Ministers can thus boast how “we” have held local taxes down, while blaming councils for the resulting 30% cut to social care since 2010. Such is the cynicism of modern politics.

For its part, the Treasury has had to seek “stealth” revenues, such VAT, stamp duty and business rates. The cost of the last to big companies has roughly doubled in the past decade, yielding £29bn last year, as much as council tax and on a quarter of the number of properties.

The south-east needs to be careful how it moans. Businesses in the north and west will benefit from the revaluation, while London is badly hit because it has grown richer and its properties are more valuable. Newly fashionable Islington and Hackney have seen their business rates soar by 45%. Javid, clearly a born-again leftwinger, said last week that he was hurting only the wealthy. He in effect told novelist Jeanette Winterson that if she wanted to shut her sourdough and quinoa outfit in Spitalfields, she could always move to Hull, and leave London to the hedgies. That is his London, not mine.

I have no problem with the south-east paying more tax. It is plainly wrong that London should get half of England’s spending on transport, and disproportionate amounts on housing, education and the arts. Under both Tony Blair and David Cameron, every lever of domestic policy was directed towards boosting London.

What was daft was to heap the entire burden of seven years of non-revaluation on to what would inevitably be small and poor as well as big and rich shops, pubs and workplaces. In inner London, the valuation cap on H-band houses means that homeowners would pay no extra council tax, however far above £1m their houses might rise in value. In Belgravia, a tiny flat pays the same council tax as a palatial mansion.

Shops and pubs are therefore seeing their taxes soar, in part because neighbouring houses have been rising in value yet incurring no extra tax. It is not the rich who are paying these new business rates, it is those who service them.

The business rate penalises the one feature of local geography that emphatically aids community cohesion, the high street. It taxes inner-city shops, and thus benefits out-of-town supermarkets and online warehouses. It taxes places where people can walk, and thus encourages shopping by car. It taxes town centre jobs in favour of commuter sprawl and rural colonisation. A business tax is a mansion tax on the Old Curiosity Shop – whose rates in Lincoln’s Inn are rising from £7,225 to £12,005. It makes the poll tax look intellectually sophisticated.

If Treasury officials ever dirtied their shoes in pubs or high streets, they would have seen this fiasco coming a mile off. Since Thatcher crushed the discretion out of local democracy in the mid-1980s, the Treasury’s grip on the public sector has tightened and yet grown more insensitive. The failure to stop the poll tax was its Waterloo. Since then, its avid centralism has supported ministers in their assaults on council tax and postponed revaluation. Britain’s total dominance of central over local sources of revenue is shared nowhere else in Europe.

My local publican, an independent, has to find another £11,000 in rates next year, in effect an £11,000 impost on his income. He might have to close, as have roughly a third of the shops in my high street in the past two years. Shops are struggling under a blitzkrieg of local hypermarkets and squadrons of Ocado and Tesco home delivery vans.

This is not “market forces” at work. It is policy at work. It is policy that, in my district, allows the development of acres of empty luxury flats, starving shops of custom. It is policy that promotes out-of-town retail. It is policy that allows changes of use from commercial to residential, sending land values soaring. The free market is not sent by God. It is what happens when ministers and councillors go home to bed.

Theresa May yesterday promised “some appropriate relief” from business rates, but that is mere palliative. Hammond has talked of taking “another look” at the rates. There is no need. They are clearly honouring government policy, which is to turn town centres into housing estates and ensure every shopping bag arrives at every home with an internal combustion engine attached. Big development and big retail are this government’s friends.

The basis of local taxation in Britain is unfit for purpose. It needs reform, preferably along lines proposed by the London mayor’s recent finance commission. This suggested that all property taxes be fixed by local councils, subject only to redistribution from rich to poor areas. Central government, said the commission, should get the hell out of a policy where it was helplessly at sea. But I can tell that May, Hammond and Javid are already screaming in the opposite direction.